Putin pounds 'unfair, dangerous' Cyprus deposit tax

(MOSCOW) - Russian President Vladimir Putin on Monday
hammered a proposed tax on bank deposits in Cyprus that could hit Moscow
oligarchs especially hard as "unfair, unprofessional and dangerous."

"Putin
said that this decision, in case of its adoption, will be unfair,
unprofessional and dangerous," Russian news agencies quoted Kremlin
spokesman Dmitry Peskov as saying.

Russian prime minister and
former president Dmitry Medvedev for his part said the levy "simply
looks like the confiscation of other people's money."

Terms of the
10-billion-euro ($13-billion) EU-IMF rescue package -- its adoption by
the Cypriot parliament postponed on Monday -- would slap an
unprecedented 9.9-percent fee on all bank deposits exceeding 100,000
euros.

Several analysts said the measure was meant to make sure
that Brussels did not spend billions propping up occasionally ill-gotten
gains of Russia's super-rich that are occasionally kept in Cypriot
accounts.

"It is clear that (Cyprus) is under tremendous pressure
from the European Union," Deputy Finance Minister Sergei Shatalov was
quoted as saying by Interfax.

Estimates vary but the Moody's
rating firm estimates that Russian companies and banks keep up to $31
billion in Cyprus. The figure accounts for between a third and half of
all Cypriot deposits.

Russia's number two bank VTB -- a
state-owned institution -- alone had $13.5 billion resting in Cyprus
through a subsidiary and was due to lose a tenth of that amount.

"VTB
Group is carefully monitoring the situation," the bank said in a
statement. "We can only assess its repercussions after studying the text
of the law."

Criticism resounded through Moscow amid warnings
that a possible run on Cypriot banks could reverberate across Europe and
set a bad precedent for future rescue packages for struggling states.

A
frustrated-sounding tycoon and former presidential contender Mikhail
Prokhorov said that Brussels "had set a real financial mine under the
idea of a single Europe."

"The European Union essentially opened a Pandora's box," he stressed.

Some
analysts believe that the Russians will now only compound Cyprus's
problems by taking their cash out and parking it in other tax havens
such as Luxembourg.

"The unhappiest of the Russians will simply
look for other places to put their money," forecast Paragone Advisory
Group analyst Alexander Zakharov.

Others noted that the Russian ruble was now likely to weaken in the face of growing investor risk aversion.

The
Moscow market -- down nearly three percent on Monday evening -- may
also suffer from the smaller volumes of available cash from which
foreigners make direct investments in Russia.

Cyprus has
consistently ranked as the largest single foreign direct investor in
Russia because of the tycoons' desire to repatriate their cash into
money-making enterprises at home.

The International Monetary Fund
(IMF) has estimated that Cyprus sent $128.8 billion in foreign direct
investments to Russia in 2011 alone.

Russia's respected former
finance minister Alexei Kudrin said the European Union had simply
"overlooked" a solution to Cyprus's banking meltdown.

"The primary responsibility for the situation in Cyprus rests with the European Union and its regulators," Kudrin tweeted.

Others
noted that it was better for the Russians to take a one-off hit than to
see the entire Cypriot banking sector collapse as it did in Russia
during a 1998 financial crisis during which Moscow defaulted on its
debts.

"Russians already has the experience of 1998 when instead
of losing 10 percent, people lost it all," noted PNB Paribas economist
Julia Tsepliaeva.

But perhaps most under threat is an agreement on
the extension of 2.5-billion-euro loan that Moscow extended to Nicosia
in 2011 at a rate of 4.5 percent.

Cypriot Finance Minister
Michalis Sarris was tentatively scheduled to visit Moscow on Wednesday
with the brief of lowering that rate and extending the loan's expiration
date until 2020 from 2016.

Moscow was reported to be seeking in
exchange details about Russian billionaires who held accounts on the
island. Russia was also said to be interested in buying a majority stake
in Cypriot lender Patriot Bank that is in need of rescue.

Yet top Moscow finance officials hinted on Monday that the bank deposit tax may scuttle negotiations.

"We
are going to take a second look at whether to take part in a deal to
restructure our earlier credit," Finance Minister Anton Siluanov was
quoted as saying by Interfax.